2014 (1) TMI 878 - AT - Income Tax

Disallowance u/s 36(1)(iii) of the Act Notional interest disallowed Held that - In S.A.Builders V CIT 2006 (12) TMI 82 - SUPREME COURT the principle laid down that where the amount has been advanced for commercial expediency of the person making the advances, then no disallowance is warranted u/s 36(1)(iii) of the Act here, the assessee has failed to bring on record any evidence to show the commercial expediency in advancing the said amount to M/s Gian Residency Pvt. Ltd. The decision in CIT V Abhishek Industries 2006 (8) TMI 123 - PUNJAB AND HARYANA High Court followed - the disallowance u/s 36(1)(iii) of the Act in respect of the investment made with M/s Gian Residency Pvt. Ltd. upheld - Decided against Assessee. Disallowance of interest u/s 40(a)(ia) of the Act Failure to deposit TDS Deduction of TDS paid on unsecured loans - Held that - The decision in CIT Vs. Sikander Khan N.Tunvar & Others 2013 (5) TMI 457 - GUJARAT HIGH COURT followed - where the assessee has failed to deduct the tax at source and deposit the same within the specified period, the expenditure relatable to such deduction of tax at source would not be allowed as deduction, while computing the income of the assessee - the assessee was liable to deduct tax at source in respect of the interest paid to NBFCs and also interest paid on unsecured loans the contention of the assessee that the disallowance of notional interest u/s 36(1)(ii) of the Act and the disallowance of interest in view of section 40(a)(ia) of the Act results in double addition cannot be accepted - The total interest expenditure claimed by the assessee was Rs.54 lacs, as against which addition u/s 36(1)(iii) of the Act has been made to the extent of Rs.34 lacs - The balance disallowance has been made by invoking the provisions of section 40(a)(ia) of the Act Decided against Assessee. Disallowance of 1/10 of Expenses Vehicle and telephone expenses Held that - The disallowance was rejected as the element of personal use cannot be ruled out Decided against Assessee.

Issues:
1. Disallowance of notional interest on advances.
2. Disallowance of notional interest on investments.
3. Disallowance of interest for non-deduction of TDS.
4. Disallowance of interest on unsecured loans.
5. Disallowance of vehicle and telephone expenses.

Issue 1 & 2 - Disallowance of Notional Interest:
The appeal challenged the disallowance of notional interest on advances and investments under section 36(1)(iii) of the Income Tax Act, 1961. The Assessing Officer disallowed the interest based on the ratio from the Hon'ble Punjab & Haryana High Court. The Tribunal upheld the disallowance, citing the lack of commercial transactions and commercial expediency. The argument based on the Supreme Court's decision in S.A.Builders was rejected. The disallowance on both advances and investments was upheld.

Issue 3 & 4 - Disallowance of Interest for Non-Deduction of TDS:
The issue revolved around the disallowance of interest due to non-deduction of TDS under section 40(a)(ia) of the Act. The Assessing Officer disallowed interest paid to NBFCs and on unsecured loans. The Tribunal upheld the disallowance, citing the failure to deduct tax at source within the specified period. The argument of double addition due to disallowance under different sections was dismissed, and the disallowance under section 40(a)(ia) was deemed warranted.

Issue 5 - Disallowance of Vehicle and Telephone Expenses:
The challenge was against the disallowance of 1/10th of vehicle and telephone expenses for personal use. The disallowance was confirmed by the authorities, stating that personal use could not be ruled out. As a result, the appeal against this disallowance was dismissed.

In conclusion, the Tribunal upheld the disallowances of notional interest on advances and investments, interest for non-deduction of TDS, and vehicle and telephone expenses. The arguments based on legal precedents and commercial expediency were considered, resulting in the dismissal of the appeal.

← Previous Next →